When You Have To Shut Down Your Startup

Source | INC42 : By Aniruddha Malpani

One of my founders just called me. He was feeling extremely guilty and ashamed about the fact that he was going to have to shut his startup down because he couldn’t make ends meet. He had tried every option he could think of, but everything had failed. He was embarrassed and was scared that I would berate him. I was his largest angel investor, and he felt that he had let me down by burning through all the money and having nothing to show for it.

I tried to offer him a balanced perspective. “As an angel investor, I understand that most startups will fail – after all, this is the fate of most of them, so you don’t need to beat up on yourself. As an angel, it’s impossible to identify which startup will succeed, which is why I assume they are all going to fail when we invest in them. Now this doesn’t mean that I like throwing away my money. It’s just that I need to be realistic, so why would I get upset because your particular startup has failed. Logically, no matter how hopeful and excited I am when I sign the cheque, there is no logical reason to expect a particular startup to be the exception ( though I do agree that hope springs eternal in the human breast, and every angel feels that they have identified a winner when they sign their first cheque).”

What upsets me is not the fact that the startup failed, but that the founder refused to communicate with his investors even though he could see his startup was spiralling downwards. Rather than fulfill their feduciary duty of keeping their funders in the loop, many founders clam up and enter prolonged periods of radio silence, during which the investors have no clue what is happening. The sanguine ones naively believe that ” no news is good news” and trust that all is well, which is why they get a rude shock then the founder tells them he is going to have to shut down in a few weeks.

Investors Hate Surprises

They have no idea what you have been trying; why you are failing; what you are trying out as your Plan B; and why nothing seems to be working. Investors will forgive failure, but they will not forgive failure to communicate. Not only is this a sign of disrespect, it also means you have betrayed their trust by hiding the dark truth from them, and this is not acceptable.

It is especially when things aren’t going well that you need to be radically transparent and honest. Interestingly, this is the time when a good angel can be worth his weight in gold. It is when you are at your wit’s end that you need an empathetic sounding board – someone who can help you think through your options objectively and thoughtfully.

The problem is that most good entrepreneurs feel guilty when they find they are failing. They try to hide this bitter reality – sometimes, even from themselves. They beat up on themselves because they feel they’ve let everyone down – their employees; their customers, their family, themselves, and their investors.

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